2021 (6) TMI 655 - AT - Companies Law

Oppression and mismanagement of the minority shareholders - Tribunal has not given any findings on the aspect - seeking urgent directions for appointment of an Interim Board of Management in the 1st Respondent Company - HELD THAT - There appears to be deadlock between both the groups specially with the resignation of Dr. Errol Pinto from the Board of Directors and the Board now has 8 Directors split into 2 groups of 4 each, as seen from the Meeting dated 27.02.2021 the Chairman could not be elected and no other matters were discussed or approved. In fact, it is significant to mention that the Appellants together with the Applicant are contending that the group led by Dr. K. Mukund is falsely claiming that the Financial Statements for the year ending 2018-19 has been approved by the Board. It is also pertinent to note that the Applicant and Appellants made a request to the Auditor not to accept the fabricated Minutes and unapproved accounts of Auditing. In the light of this deadlock and taking into consideration that it is a Hospital and specially keeping in view that the Hospital is involved in the critical care of patients, pertinently in today s scenario, it can be concluded that such a deadlock is unhealthy both for the Companies, its shareholders and in the public interest and for all the aforenoted reasons, we allow this Application and direct the parties to file a Panel of three names/persons within 10 days - application allowed.

Issues Involved:
1. Oppression and mismanagement of minority shareholders.
2. Appointment of an Interim Board of Management.
3. Conduct of forensic audit and financial transparency.
4. Deadlock within the Board of Directors.
5. Allegations of fraud and malfeasance.

Detailed Analysis:

1. Oppression and Mismanagement of Minority Shareholders:
The appellants contended that the Tribunal had not provided any findings regarding the oppression and mismanagement of minority shareholders. This issue was central to the appeal as the appellants sought redress for the alleged unfair treatment and exclusion from the decision-making processes within the company. The Tribunal's lack of specific findings on this matter was a significant point of contention.

2. Appointment of an Interim Board of Management:
The 5th Respondent, Dr. A.G. Jaya Krishnan, sought urgent directions for the appointment of an Interim Board of Management with an independent Chairperson to manage the day-to-day affairs of the hospital. This request was based on the deteriorating state of affairs within the company, including the lack of financial statements and returns for the financial years 2018-2019 and 2019-2020, and the gross mismanagement affecting public interest. The Tribunal acknowledged the deadlock within the Board, especially following the resignation of Dr. Errol Pinto, which hindered the company's operations and necessitated the appointment of an independent Chairperson.

3. Conduct of Forensic Audit and Financial Transparency:
The appellants highlighted the need for a forensic audit due to multiple findings of fraud and malfeasance, including discrepancies in billing, cash balances, professional charges, sale of cathlabs, and purchase of stents. The Tribunal noted that previous audits had been conducted under the supervision of independent Chairmen appointed by the CLB, and the financial statements were in the public domain. However, the appellants contended that these audits were insufficient and called for a forensic audit to ensure transparency and accountability.

4. Deadlock within the Board of Directors:
The deadlock within the Board of Directors was a critical issue, exacerbated by the resignation of Dr. Errol Pinto. The Board was split into two groups of four directors each, unable to agree on significant matters, including the election of a Chairperson. This deadlock impeded the company's ability to function effectively, particularly in providing critical care to patients. The Tribunal recognized this deadlock as unhealthy for the company, its shareholders, and public interest, thus justifying the appointment of an independent Chairperson.

5. Allegations of Fraud and Malfeasance:
The appellants and the 5th Respondent alleged fraud and malfeasance within the company, including manipulation of financial statements and exclusion from Board meetings. The Tribunal noted these allegations and the appellants' request for a forensic audit to address these concerns. The Tribunal directed the parties to submit a panel of three names for the appointment of an independent Chairperson to manage the company's affairs until the disposal of the appeals.

Conclusion:
The Tribunal allowed the application for the appointment of an independent Chairperson with full administrative powers to manage the company's affairs. The parties were directed to file a panel of three names within ten days, and the Tribunal would appoint a suitable person from the panel. If the parties failed to submit the panel, the Tribunal would appoint an independent Chairperson. The decision aimed to resolve the deadlock within the Board and ensure the smooth functioning of the hospital in the interest of the company, its shareholders, and public interest.

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